SOLAR NEWS FROM THE AUTHORITY

Solar Forum: Where are we going and how will we get there?
Paula Mints, February 17, 2010 (Rahus Institute Solar Forum presentation)

SUMMARY
Are all the sunny reports of growth and jobs in the solar energy industry reliable?

Paula Mints, the Principal Analyst for the Navigant Consulting PV Services Program, only tells what the Sinatra/Rat Pack boys used to call the “ehmess.” That’s Hebrew for “truth” and the Mints/Navigant data is only ehmess. The word everywhere in the New Energy world is that if Paula Mints reports it, take it to the bank.

Mints says the solar photovoltaic industry left a lot of panels on the shelf in 2008 and 2009.

The 2008/09 production far outstripped demand and, as a result, installations in 2009 were greater than panel sales. The result is the lowerst cost per watt (peak) ever.

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The industry, which has shifted dramatically in the last decade from remote, off-grid systems to urban and suburban grid-connected systems as it grew from the megawatt level to the gigawatt level, is also driving toward lower costs both with its increased production capacity and with innovative financing and incentive plans that are bringing the cost of an installed system down.

In 2009, the bulk of the manufacturing of photovoltaic panels – over half – was in China, Asia and the non-U.S., non-European, non-Japanese parts of the world. On the other hand, the demand for PV – over 80% – was in Europe.

Thin film manufacturers/installers continued to gain market share, largely as a result of First Solar’s growth. First Solar became the leading solar panel shipper in 2009, the first time a thin film manufacturer has led the PV marketplace.

Mints' forecast is for continued growth in 2010, compromised by some reduced incentives (especially in Europe), a hesitantly recovering world economy and the need for new transmission (among other factors). She sees much bigger growth for solar PV in the 2011-thru-2013 period.

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COMMENTARY
Mints and Navigant take very seriously their role as suppliers of data and insight to the New Energy industries. They specialize in market research based on primary data that can be used to identify important trends.

The oversupply of panels in 2009 was reflected in the PV industry’s capacity utilization of 47% (i.e., it was using less than half of its total production capacity). The capacity figure could be as low as 29% if it was based on the announcements of production capacity by the various PV manufacturers, the reliabilty of which Mints somewhat discounts.

Nevertheless, companies did withhold production and were conservative in building new capacity in 2009. Commercial capacity still increased by 29%, due largely to plans already in motion. Because of excess inventory, the volume of solar panels installed was larger than the volume of panels shipped by manufacturers.

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Some basics about U.S. PV incentives:
(1) There is a system of multiple incentives from various sources. It begins with tax credits that discount up front costs for installations and for manufacturing, as well as state Renewable Electricity Standards (RESs) that require a solar carve-out to significantly impact demand for solar.
(2) There is an emerging feed-in tariff (FiT) model. The FiT is an above market return to those who install systems for the electricity they sell to the grid. The emerging U.S. FiT will be more complicated and less profitable than Europe's FiTs.
(3) 16 states and D.C have RESs with solar carve-outs.
(4) The federal incentives are tax credits, grants and loans.
(5) 42 states have solar incentives (tax credits, tax waivers, rebates, etc.). There are 10 states with 10 or more different kinds of solar incentives.
(6) California has the most ambitious RES, requiring 20% of its power to come from New Energy sources by the end of this year and 33% by 2020. It also has 47 solar incentive programs.

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How incentives drive the solar market:
(1) Even where there is grid parity (i.e., the price of electricity is at or above the price of solar-generated electricity), the market is small without other incentives, likely because there is little profit to be made from a solar system without an FiT and because there are high upfront capital costs for installation.
(2) California’s incentive program wins over 60% of the U.S. PV market but could run into trouble as the state expends its grid capacity and runs short of funds.
(3) New business models for financing PV systems are emerging that are expected to eliminate the high upfront cost obstacle and drive growth but there is not enough data to assure the success of these models. Such models include plans to allow private partners to finance and lease systems to homeowners as well as plans that allow homeowners to take municipal financing for systems and pay for them through their property tax assessments.

PV solar has 5 major applications: (1) Off grid homes, (2) Off grid industrial, (3) Power (such as military uses), (4) Grid connected home, commercial and utility scale systems, and (5) consumer indoor systems (like watches and cell phones). The industry grew at 8% per year in the 1980s, largely through off grid installations and consumer indoor systems, but has matured to the point where 90% of sales are now from grid connected systems.

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From 1999 to 2009, the solar PV industry had a 42% compound annual growth rate (CAGR)!

PV manufacturing has moved to the lowest-cost regions (Asia, especially China) but the industry still depends for demand on Europe, and especially on Germany which, in 2009, represented 71% of PV market demand.

Of the 55% of the PV manufacturing done by the non-U.S., non-European, non-Japanese parts of the world, 30% was done in China.

Thin film materials began claiming a significant share of the market in 2007. In 2009, sales of First Solar’s cadmium telluride thin film product was the leading single component of the PV market, the first time thin film has led the PV sector.

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Soft demand and an incomplete reaction by suppliers has put total module prices at an average of $3.00/Wp. Power modules (smaller buyers, wattage >150-watts), are less expensive ($2.25/Wp, average). Larger buyers are paying an average of $1.85/Wp. The market’s high price is $3.75/Wp and low price is $1.40/Wp.

The 2009 accelerated forecast, though it looked unlikely at mid-year, turned out to be accurate. Germany’s move to cut its FiT should drive early demand as buyers scramble to get the higher rate before it is terminated (in June). That should eat up some excess supply. This means the accelerated forecast is again the most likely one for 2010. The movement of the industry in 2011 will depend on how much growth there is in the U.S. market and how Germany reacts to its reduced rate.

The U.S. market has great potential but could be hampered by slow incentive growth and/or a slow economic recovery and it could run into the limits of the antiquated U.S. transmission system.

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QUOTES
- Paula Mints, Principal Analyst, Navigant Consulting PV Services Program: “Market research is the objective study of a subject using data gathered through primary research to characterize, analyze and forecast demand and supply for, in this case, the photovoltaic industry…Market research makes use of data to identify trends and customers, and analyze competitors…Primary research is direct contact with the person buying and selling…The purpose is to provide an objective analysis that managers and executives can use for business planning purposes…it analyzes raw material through to the end user…”

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- Paula Mints, Principal Analyst, Navigant Consulting PV Services Program: “New business models are emerging in the U.S. that eliminate the need to own the means of production out of the electricity consumers hands … as renting electricity remains the paradigm this is good news. Leasing, utility ownership of systems on customer’s rooftops area all being explored…Innovative financing options such as PACE, Policy for new home construction, will make it easier for homeowners to make a commitment to solar, but time (and an improved economy) will tell how much of a market stimulus this will add…”

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- Paula Mints, Principal Analyst, Navigant Consulting PV Services Program: “We’ve come so far, and we have far to go.”